Budget 2023 Expectations: Foster tie-ups between government and stakeholders to support startups

It is necessary to provide tax incentives to startups investing in R&D, and angel investors, VCs who invest in startups

Pranav Dwivedi January 29, 2023 09:03:12 IST
Budget 2023 Expectations: Foster tie-ups between government and stakeholders to support startups

The startups need support from all quarters

The Indian startup ecosystem has been witnessing an unprecedented boom in the last few years with new businesses emerging in a multitude of sectors. However, the pandemic has brought with it immense uncertainty and disruption to the startup landscape, making it difficult to forecast and plan for the future. As a result, this year’s Union Budget 2023 is being closely watched by many startups, as they seek measures to support them in overcoming these difficult times.

The Union Budget 2023 must ensure that the government takes steps to effectively address the challenges posed by the pandemic. To do this, measures must be taken to foster collaboration between the government and stakeholders in the industry to create a supportive environment that is conducive to the growth of startups. This will allow the private sector to reap the benefits of a dynamic and innovative startup ecosystem while allowing the government to reap the rewards of a thriving economy.

To ensure effective regulation of the rapidly developing startup sector, Budget 2023 should go beyond just government assistance. Private entities, industry professionals, and other relevant institutions must be involved to ensure that the sector is able to innovate and thrive.

Provide tax incentives

The government should provide tax incentives to startups that invest in research and development, as well as angel investors and venture capitalists who invest in startups. This would help startups develop new technologies and products, incubate innovative ideas, create jobs, and promote economic growth in the sector.

To create parity in the sector, the government should make sure capital gains tax treatment is equal between unlisted and listed equity investments as unlisted companies bear higher risk. By taking these steps, the government can help create an environment that encourages innovation, investment, and job creation.

Section 80-IAC of the Income Tax Act provides a special exemption for corporations incorporated between 1 April, 2016, and 1 April, 2023, but unfortunately, only a small number of startups have benefitted from this exception. We, therefore, strongly urge an extension of the period of incorporation beyond 1 April 2023, enabling the newest entrants to the startup world to reap the benefits of the exemption.

The existing three consecutive years of tax holidays should be increased to five years. With such a tax holiday, start-up businesses will have greater access to capital for product and research developments and resources, enabling them to remain competitive in the global market. For the remaining years, we suggest that the corporate tax rate for micro, small, and medium-sized businesses (under certain criteria) be lowered to the minimum rate of 15 per cent. This way, a greater number of startups and small businesses can take advantage of significant tax savings.

Ease regulatory burden

The Indian startup scene is looking for the government to ease the regulatory burden on startups. This could include reducing complicated paperwork and compliance requirements for registering and incorporating a business, as well as providing financing for vital legal and accounting services. This would give startups the peace of mind to focus on their business goals, and make it easier to navigate the financial and legal landscape.

The government could offer funds for incubation and accelerator programs, and co-working spaces, which provide mentorship, networking opportunities, and the chance to collaborate with other entrepreneurs. The success of these initiatives has already been demonstrated in countries such as Singapore. By providing access to the same kind of support, India’s startup sector could rise to the same heights.

Provide increased funding for digital infra

The Indian startup sector’s plea for more funding for digital infrastructure is not something that can be ignored. Government initiatives should be set in place to facilitate collaboration between startups and established Navratan companies/PSUs, through initiatives such as corporate venture capital funds or mentorship programmes. Furthermore, investing in high-speed internet connectivity, cloud computing, and data centers should be at the top of the government’s agenda.

Make India a hub of AI innovation and research

The promise of Artificial Intelligence (AI) cannot be underestimated either. AI is set to be a key driver of economic and social progress in the coming years. Having the capability to lead the development and deployment of AI on a global scale is critical for India to remain competitive and attract foreign investment. This is why the government must take meaningful steps to make India the hub of AI innovation and research

Overall, the Indian startup ecosystem has been resilient in the face of the ongoing pandemic. However, many startups continue to face uncertainty and instability. As such, Union Budget 2023 will be a key moment for startups across the country, with the hope that appropriate measures will be put in place to provide the necessary support and guidance that will enable them to make it through this difficult time and continue to grow and thrive in the future.

The writer is Founder, Netratvshaala. Views expressed are personal. He tweets @pranavdwivedi_ @netratvshaala

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